ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What is a total revenue test? It’s a test that determines whether a product’s (or service’s) demand is elastic or inelastic. The test approximates a product’s price elasticity of demand by measuring the change in the total revenue against a change in the price.

Detailed explanation-2: -The price elasticity of demand measures the responsiveness of percentage change in price to percentage change in quantity demanded. There are three popular methods for measuring price elasticity of demand named Straight line method, Outlay method and Arc elasticity.

Detailed explanation-3: -In economics, the total revenue test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded.

Detailed explanation-4: -The elasticity of demand tells suppliers how their total revenue will change if their price changes. Total revenue equals total quantity sold multiplied by price of good. With elastic demand – a rise in price lowers total revenue TR increases as price falls.